|
International
Journal for Construction Marketing |
Roy Morledge
Construction Procurement Research Unit, The Nottingham Trent University, United Kingdom
Keywords
construction clients,
improvement, barriers to innovation
Contents
Abstract
Introduction
Drivers for change
Proposed solutions
Barriers to Innovation
Marketing a solution?
Conclusion
References
ABSTRACT
This paper outlines the shortcomings of the UK construction industry and the difficulties experienced by small and occasional buyers from the industry. This group, which is by far the majority in terms of the total number of clients, relies heavily upon their consultant advisers and appears to be frequently disappointed by the effectiveness of the processes adopted and the products they receive.
This paper discusses the solutions, which have been already developed for many of the identified problems and identifies the diffusion of these problems rather than their implementation as a major barrier to improvement within the fragmented construction sector.
Some practical, but innovative solutions are offered to the problem of diffusion of good or improved practices.
INTRODUCTION
The UK Construction Industry has a reputation for delivering defective buildings late and over cost. In a survey of construction customers Gallup (1995) discovered that some third of the projects which were the subject of their survey were delivered both late and over budget. A similar survey carried out by Morledge et al (1996) found that of 215 commercial and industrial projects surveyed two thirds were delivered late.
A report, which was focused upon the problems of small and occasional clients of the industry (The Construction Clients’ Forum 1997), found that some 60% of construction clients experienced problems when dealing with the construction industry. Paradoxically in 70% of cases, however, the completed building itself usually met client needs but the problems during the procurement process and during the ‘after sales’ period tended to tarnish the level of client satisfaction.
These problems experienced by small and occasional clients seemed to result from being advised to adopt processes which they did not fully understand or which had not been fully explained to them. The report highlighted the difficulty in understanding construction procurement processes; the lack of clarity about roles and responsibilities; the difficulty of making decisions about a new project whilst continuing with their primary business and obtaining value for money.
The Report of the Construction Task Force (DETR, 1998), the so-called "Egan Report", confirmed the need for improvement. The report identified that projects are widely seen as unpredictable and often fail to meet the needs of modern business in terms of delivery on time, within budget and to the standards of quality expected.
The Construction Clients’ Forum (CCF), representing clients with an annual construction spend in excess of £40 billion, was formed in 1994 as part of the repositioning of construction industry participants post the review of the construction industry under the leadership of Sir Michael Latham. CCF soon identified that Small and Occasional Clients (SOCs) were by far the majority of the population of construction clients and that most SOCs did not understand construction procurement processes and relied upon their consultant advisers. The CCF believe that this majority of inexperienced clients, daunted by the reputation of the construction industry are often nervous about seeking new construction and this lack of confidence in the industry may have quite a serious impact upon the demand for new construction.
DRIVERS FOR CHANGE
The industry itself is characterised by relatively small firms delivering relatively small projects within extended and complex supply chains. In fact some 30% of all construction work in 1995 (DETR 1995) was carried out by the 95% of companies who employ less that 8 employees, and only 7% of the total number of projects in the industrial and commercial sectors exceed £1million in value. (see Tables 1 and 2)
The publications referred to above indicate that the industry and clients recognise that the potential for measurable improvement is significant. This paper argues that the achievement of continuous improvement is severely constrained by the existence of market failure. Market failure is perceived to be evident since the client demand side has insufficient knowledge or access to knowledge to enable the bargain or contract to be made on equal terms. It is also the case that such clients are unable to see what improvement they can demand. This scenario of a fragmented and largely inexperienced customer base and a similarly fragmented but knowledgeable supply side, resulting in disappointment is one where the potential for improvement is significant but the medium for improvement is almost non-existent.
With the exception of those (educated) clients who have taken membership of client-based organisations (such as CCF, CRT or BPF) communication between the supply side and the client sector is extraordinarily difficult since they are often only occasional buyers and may consequently belong to no particular representative grouping.
The demand side of the industry has now begun to drive change in the absence of sufficient action on the part of the supply side to implement improvement. The CCF (1998) have set out a ‘pact’ to achieve continuous improvement by working together with the construction industry. In this document CCF criticise the industry and its professions and the products and services which they offer, but offer an agenda for change and in so doing argue a case for ‘good clientship’. CCF in so doing, criticise those clients who focus on low cost, quick fix solutions and subsequently complain about lack of value for money and poor performance. Certainly there is some evidence (Morledge et al, 1996) that some clients use their buying power to insist upon impossible solutions, including unrealistic time-scales, and prices and fees that are likely to encourage conflict.
Similarly the Construction Round Table (CRT) represent customers who in 1997 expected to spend some £6 billion and they have identified an agenda for change (CRT 1997) stating the standards they seek from the industry and a commitment to improve their own performance as customers and the industry’s performance as the providers of components and services.
The Egan Report (1998) has identified key drivers of change and has set some targets against which the performance of the industry will be judged. These include an annual reduction of 10% in construction costs and in construction time. The Task Force has concluded that the major clients of the construction industry must give leadership, and initiate the movement for change.
PROPOSED SOLUTIONS
The emphasis on client-driven change and good client stewardship is common to all these initiatives. The supply-side of the industry through the newly-formed cross-industry Construction Industry Board (CIB) has shown evidence of a willingness to co-operate in seeking improvement through the publication of a range of documents and has joined together with the CCF by agreeing to the spirit of the CCF ‘pact’. (all representative bodies having expressed their support in a letter to the ‘Times’). The range of publications offer advice and indicate good practice in the processes associated with construction procurement. Consequently, these documents are agreed as setting down the sort of practice which can achieve the best of what is done and what can be done to achieve better products and better value (see Table 3)
BARRIERS TO INNOVATION
There are, however, real barriers to innovation. These include supply-side resistance to change and a weak demand-side in terms of the proportion by number of clients who have access to innovative or improved techniques. In their discussions and in their document, for example, CCF has delicately accused the constructors of failing to properly manage their supply chains and the professions of resisting change. They have also suggested the need for a significant increase in research and innovation, whilst recognising that complex and lengthy supply chains usually prevent innovation and improvement.
The clients say that they want to focus on value – this makes good business sense to them – and whilst cost is one of the primary criteria it is not the only one, speed or quality being potentially as important. In the supply chain cost seems to be the only criteria, an attitude of giving the least and trying to claw back the most prevailing. This is not a climate where improvement or innovation will be sought or encouraged, the focus will be on maintaining existing practice and keeping the costs down. There is no mechanism to communicate innovation or improvement and little reward where this takes place. Where a client wishes to adopt a different approach with a contractor there is no guarantee that the contractor will approach his subcontractors in the same view.
Interestingly there may be a solution waiting for a problem here. When the demand for construction work grows the limited availability of skills available in the UK will give specialists and subcontractors a real grip on the supply chain and they are able to turn the tables on those who have in the past ‘done to them’.
If the climate for change in the supply chain can be created before the power base shifts, a less aggressive approach to market shift may be possible. This will enable the supply-side to focus on the project and its quality or value for money, rather than allowing the price low, claims high ‘macho’ culture to continue. What most businesses need is a fairly consistent flow of work at the right price to enable them to be assured of a regular cash flow and to be able to support an adequately trained workforce. Construction businesses are no different and this can be partly achieved where clients and contractors adopt different practices and cascade these practices down the supply chain.
The construction professions can also be seen as part of the supply-side and they have a particular responsibility to ensure that their clients’ interests are best served. Chalkley (1994) in quoting the Ormrod Committee of 1971 emphasises this responsibility. However, in a way, the professions are now in a similar position to the rest of the supply chain insofar as clients, who are unaware of the service they need, will frequently choose their consultants on the basis of price rather than quality. Consequently clients cannot always rely upon the value of the service being offered or that the service offered is fulfilling their entire requirements. When clients become aware of the value of services such as value management they may well request such a service, but there is evidence that this is either unknown to them or that they expect it as part of a standard package (which it may or may not be).
So the supply side is developing solutions and the experienced clients setting agendas, but this is at a strategic level. The clients or the industry may be unable to gain the advantage of improvement or increased value for money unless the concepts are marketed both to SOCs and to the small firms in the supply chain. Re-engineering of dated processes may evolve too late to maintain the confidence of the demand-side and here is the problem. How can continuous improvement be successfully marketed?
MARKETING A SOLUTION?
The shape and character of the industry suggests that marketing improved processes will be a complex problem requiring innovative solutions in order to be successful. As indicated above, the majority of the client sector do not form an identifiable group and that is a major problem in marketing improved or innovative processes. However there are some key issues which may assist communication with these clients. For example, most small or occasional (and consequently largely inexperienced) clients will need to fund their project, will need to seek professional advice and will need to seek planning permission. Project funding is usually provided through the banks; advisers are usually members of those professions who have already in principle ‘bought in’ to CIB solutions; and Local Planning authorities are a national source of data about who clients are. All are potential (if non- traditional) communication lines to SOCs.
When the SOCs report was published CCF also produced a pamphlet aimed at national distribution called ‘Thinking of Building’, which included a 5-step guide for small and occasional construction clients. To date some 60, 000 have been distributed to Chambers of Commerce, Business Links, banks, professions, professionals, and to other parties as well as being available on the CCF Website. How effective such an approach will turn out to be is difficult to assess, but at least the client bodies are approaching the problem from the top down by the ‘Pact’ and the bottom up by the ‘5 Step Guide’.
CONCLUSION
Changing the culture of the supply chain will prove much more difficult, but the ability to communicate is greater. Most construction companies, specialists or subcontractors belong to a representative body or are listed. It is possible to retain a level of cynicism about the solutions proposed by CIB, CCF and others. However, most of the solutions to construction industry woes are based on simple good business sense and cynics may simply be defending their own interests. The major problem is probably how to change public perception and industry culture, but fundamentally:
The scenario suggests that cross-industry marketing strategy is needed in line with the policy statements set down and already agreed, and with the good practice guides published. The alternative may be intervention by institutions or government which is less desirable, as evidenced by the impact of the ‘Construction Act’ (1998). CIB can drive the strategy, but development is a problem because of the fragmentation and complexity of the demand and supply sides.
This paper has suggested a strategy focused upon on the one hand change driven by experienced clients and on the other an approach to enable SOCs to be aware of how they can access advice on best practice. Whilst the former can be achieved relatively easily, the latter requires a co-operative and focused response by a range of participants including the bank, the local planning authorities and the professions. The dilemma is whether motive and message are conducive to each other.
REFERENCES
CCF (1997) Solving the Problems of Small and Occasional Clients of the Construction Industry, Final Report, DoE, London.
Gallup Surveys (1995) Customer Survey, Building, July 28th, pp. 26-27.
Latham, Sir M., (1993) Trust and Money, Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry, Interim Report, DoE, London.
Latham, Sir M., (1994) Constructing the Team, Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry, Final Report, DoE, London.
CCF (1998) Constructing Improvement, Working Together for Better Construction, CCF ,London.
Morledge, R., Bassett, D., Sharif, A. (1996) Client Time Expectations and Construction Industry Performance, RICS COBRA Conference Papers, Bristol.
Chalkley, R. (1994) A Handbook for Chartered Surveyors, Second Edition, The Royal Institution of Chartered Surveyors, London.
International Journal of Construction Marketing
ISSN 1463-7189 (web)
ISSN 1463-770 (hardcopy)
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